People walk past a GameStop store in Midtown Manhattan on January 27, 2021 in New York City.
Michael M. Santiago | Getty Images
The astronomical rally in GameStop left short sellers huge losses of nearly $ 20 billion this month, but they are not budging.
Hedge fund short sales suffered a $ 19.75 billion drop in market value at the brick and mortar video game retailer, including a loss of nearly $ 8 billion on Friday as the stock rose further, according to S3 Partner.
Still, short sellers mostly hold onto their bearish positions or are replaced by new hedge funds willing to bet against the stock. GameStop stock that was borrowed and sold short is down just under 5 million in the past week, which means an 8% decline in short rates, according to S3. Most of the short coverage came on Thursday when the stock fell for the first time in six days.
“I keep hearing that ‘most GME shorts are covered’ – totally wrong,” said Ihor Dusaniwsky, S3 managing director for predictive analytics. “In fact, the data shows that the overall short sale rate hasn’t changed too much.”
“While the ‘value shorts’ that used to be in GME were squeezed, most of the borrowed stocks that were returned on the back of the buy-to-cover were cut with new momentum shorts in the name,” Dusanivsky added in one Email.
GameStop’s shares, as well as other sharply shortened stocks, rose again on Friday after Robinhood announced it would resume limited trading in previously restricted securities. The profit brought GameStop’s rally over 400% this week and over 1,600% this month.
The video game inventory starred the show on the WallStreetBets Reddit forum, which quickly grew membership to over 5 million. A wave of day traders continued to encourage each other to pile up on GameStop’s stocks and call options, resulting in a massive short squeeze that hurt hedge funds betting against the stock.
The GameStop stock borrowing fee – or the cost of borrowing stocks for the purpose of short selling – rose to 29.32% for existing short positions and 50% for new short positions, S3 said.
“If most of the short positions were covered, we wouldn’t see stocklending rates at these high levels – now you could borrow GME stock in the single digits as the supply of stock borrowed loans has increased after all the ‘supposed’ buy- to be returned covers, “Dusanivsky said.
GameStop remained the most abbreviated name on the market as the percentage of stocks available for trading was 113.31%, S3 said.
Short selling is a strategy in which investors borrow shares of a stock at a certain price in the expectation that the market value will drop below that level when it is time to pay for the borrowed shares.
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